Pension Plan Governance during the Financial Crisis

There, in black and white

NB Bulletin Vol. 12, N. 8, July 2009

The financial crisis severely impacted pension plans in 2008, and the uncertainty remains. Pension committee members must manage this situation and several challenges will need to be addressed in the years ahead. What are the responsibilities of the pension committee in the current economic climate?

First, your internal by-laws, required by the Supplemental Pension Plans Act, should identify the risks associated with your pension plan and the measures for effectively managing these risks. Sound administration consists of various internal control mechanisms whose goals include monitoring the pension fund and plan administration. Although it is important to apply these measures at all times, it is even more important to do so during a financial crisis. This information bulletin presents a few reminders that may be helpful.

Service providers

To fulfil its responsibilities, the pension committee will typically retain the services of different experts. When the pension committee assigns duties it should carefully choose the expert, clearly establish the responsibilities of each party, give the expert straightforward instructions and conduct periodic follow-up of the work completed.

Moreover, the pension committee must act with the prudence, diligence and skill that a reasonable individual would have exercised. Committees are presumed to have acted with prudence where they have acted in good faith and on the basis of an expert's opinion.

During unusual times, such as the crisis we are currently experiencing, it becomes even more important for committees to base their decisions on the opinions of experts.

Investments

The financial crisis had a drastic impact on pension funds. Careful monitoring of the investment policy has thus become critical. In cases where the pension committee chooses the investment funds offered to members (defined contribution plans), it may be appropriate to review the options offered. The pension committee should ensure that members have access to resources that can answer their questions and guide them in their decisions.

Payment of contributions

The Supplemental Pension Plans Act requires that contributions be paid to the pension fund within 30 days following the date on which they are due.

Pension committee members must ensure that required contributions are paid to the pension fund each month within this time frame; otherwise, the pension committee must notify the Régie des rentes du Québec of any unpaid contributions within 60 days following their due date.

Committee meetings

The pension committee is required to plan meetings according to the schedule set out in the internal by-laws. The pension committee must meet as often as necessary to ensure the effective completion of its tasks. During a financial crisis, increasing the frequency of meetings to monitor pension plan administration more closely could be appropriate.

Communication with members

The information communicated through the media is inciting members to question even more the financial health of their pension plan. To silence the rumours and maintain members' trust in the pension committee, it is important to take the time to discuss the situation with members. To be effective, your communication should be simple (despite the complexity of the situation), plain (despite the abundance of technical jargon) and reassuring (despite the troubling situation).

The annual general meeting may become a special forum for informing members, reassuring them in the face of the current crisis and answering their questions.

In short, sound pension plan administration is especially important during a financial crisis. The application of measures identified in the internal by-laws is even more important. The actions taken and the decisions made must be well documented.

This bill proposes making the Régie subject to the Act respecting the governance of state-owned enterprises and aims to introduce new governance rules concerning the composition and operation of its board of directors. This once again demonstrates the importance of sound governance in the current economic climate.